Demand and Supply Flashcards
States that the lower the price of a good, the larger the number of consumers. All other things held constant.
Law of Demand
There is a negative relationship between quantity demanded and price.
Law of Demand
Determinants of Demand
- Prices of good or service
- Consumers’ income
- Prices of related goods and services
- Consumers’ preferences
- Expected price of the product in future periods
- Number of consumers in the market
Determinants of Supply
- Prices of the good
- Prices of inputs used to produce the good
- Prices of goods related in production
- Level of available technology
- Expectations of the producers concerning future price of the good
- Number of firms or the amount of productive capacity in the industry
Consumers are willing and able to buy more goods if the prices are lower.
Price of good or service
An increase in income causes consumers to demand more of a good, all other variables are constant
Normal Good
Other goods and services consumed less if there is an increase in income.
Inferior Goods
An increase in income can cause the amount of commodities that consumers purchase to either increase or decrease.
Consumers’ income
If one (1) good can be used in the place of another.
Substitutes
Goods that are used together.
Complements
If there are two substitutes, an increase in the price of one good will increase the demand for the other good.
Prices of related goods and services
If the price of a good increases, the demand for the other good decreases.
Prices of related goods and services
Demand will increases as consumers see it as having higher quality, more fashionable, healthier, or more desirable in any way.
Consumer’s preferences
Demand will decrease when consumers perceive falling quality, displeasing appearance, or unhealthiness.
Consumer’s preferences
If consumers expect the price to be higher for a future period, demand will probably rise in the current period.
Expected price of the product in future periods
If consumers expect the price to decline for a future period, demand for the current period will fall.
Expected price of the product in future periods
Increase in the number of consumers will increase the demand.
Number of consumers in the market
Decrease in the number of consumers will decrease the demand.
Number of consumers in the market
What causes the entire demand curve to shift to a new location?
When any one of the five (5) determinants, other than price, changes value.
States that all things are equal, an increase in price results in an increase in quantity supplied.
Law of Supply
The higher the price of the product, the greater the quantity produced. All other things are equal.
The price of the good
The lower the price of the product, the smaller the quantity produced. All other things are equal.
The price of the good
Increase in the price of one or more of the inputs will increase the cost of production. If the cost rises, it becomes less profitable and will produce smaller quantity.
The prices of inputs used to produce the good
An increase in the good X relative to good Y causes an increase in production of good X and decrease production of good Y.
Substitutes
An increase in the price of good X causes producers to supply more of good Y.
Complements
State of knowledge concerning how to combine resources to produce goods and services.
Technology
If producers expect the price to rise in the future, they will withhold some goods resulting to a reduction in supply in the current period.
The expectations of the producers concerning the future price of the good
Number of firms or productive capacity increases, more supplies
The number of firms or the amount of productive capacity in the industry
States that a low supply and high demand increases price while a high supply and low demand tends to make prices fall.
Law of Supply and Demand
Happens when producers supply more of a product at a given price than buyers demand.
Surplus
Happens when buyers demand more of a product at a given price than producers are willing to supply.
Shortage
Maximum amount the government permits sellers to charge for a good.
Ceiling Price
What occurs when the ceiling price is below equilibrium?
Shortage
Minimum amount the government permits sellers to charge for a good.
Floor Price
What occurs when the floor price is above equilibrium?
Surplus
